Over allotment use...
near as I kin recollect, underwriters can short the IPO, and use the OA to cover.
Say, short it over their cost and cover in the market...to 'show support', or help maintain the price....for a while.
In that case, they wouldn't need to tap the OA, but could 'show support' by buying in the open market.
However, should the price continue upwards, the OA is there to 'protect' their short position,
or alternatively, for them to exercise (purchase) and subsequently sell into the market...for a guaranteed profit.
Additionally, they could short the higher price, and then distribute (sell) the OA shares to (favored) others, again, with a profit locked in.
F. Over-Allotments and Lay-Off Sales
Rule 201 exempts short sales by underwriters or syndicate members participating in a distribution in connection with an over-allotment. It also exempts lay-off sales by these persons in connection with a distribution of securities through a rights or standby underwriting commitment. kattenlaw.com
A blurb about Morgan Stanley et al.
bbc.co.uk
I recall back in the hi flyin' IPO days, more than one underwriter was slapped by SEC for using customer accounts to do buy ins to run up the price.
Anyone feel free to disabuse me of my notion, should it be incorrect these days.
Best,
S. |
